Elliott Investment Management, a US investment firm that manages a hedge fund, wants to take an active role in shaping the future of Southwest Airlines. I don’t see much good that can come from this from a customer perspective, though Southwest’s stagnant financial performance makes change all but inevitable.
Elliott Wants To Transform Southwest Airlines
Southwest is in a difficult position. Its widely successful business model, at least historically, has stagnated thanks to rising labor and other fixed costs as well as fiercer competition from its US legacy carrier competitors.
Without growth, it appears that Southwest will be unable to keep pace with its rising cost structure. As One Mile At A Time reported, fundamental changes are under consideration to the Southwest business model, including:
- An end to open seating
- Breaking aircraft cabins into three sections and charging for seat assignments based on proximity to front of the airplane
- New fare bundles including no flexibility on “Wanna Get Away” fares and no ability to even pay for a specific seat when buying this “basic” fare
Now Elliott Investment Management has upped its investment to $2 billion in the Dallas-based carrier and wants to take a more active role in shaping the company’s strategy. As noted by The Wall Street Journal, the goal will be to increase shareholder return (which is a very different thing than creating a good experience for customers) .
Southwest Cannot Transform Itself Overnight
Some changes are possible while others are not. Southwest has fallen behind by being unable to capture any of the boom in demand for intercontinental travel or even international, beyond its limited route network into Latin America and the Caribbean. It’s not like Southwest can quickly take delivery of widebody jets and start flying to Europe. And even if that were possible, I’m not convinced that would be the way forward for Southwest.
Southwest can try open seating, inflexible basic economy fares, and start charging for bags…and people will respond by being far less loyal. Will it work?
I suppose it is worth a try, though I predict it will go down as well as “New Coke” did. Southwest has devoted fans (I know many of them) who pay extra (don’t even price shop) when it comes time to travel because they like the policies that make Southwest Airlines unique.
You add punitive basic economy fares or start charging for the second bag and people will start price shopping and perhaps discover that flying Delta or United is a much more pleasant experience with seatback screens, better food onboard, and the ability to travel the world.
CONCLUSION
I am quite pessimistic about any hedge fund pressuring an airline to “increase shareholder value” since that simply will not end well for consumers. But perhaps Southwest will have to learn the hard way. And the carrier, which has been unique among its peers in avoiding bankruptcy, may find the only way ultimately forward is to declare bankruptcy and renegotiate labor contracts…
image: Southwest
I think Southwest needs to continue to do things differently but in a good way.
Bring on the assigned seating but do something that none of the other airlines do…more legroom for all…you can advertise the hell out of having more legroom for everyone and that Southwest shares the love for all. It might lose a row of seats but it would be a differentiator that would set the airline apart.
Add 8 first class seats to make up for the lost revenue. Also, offer to block the middle seats for elite flyers if the seats aren’t sold to make economy class feel a little like first…sometimes I’d prefer to have an empty middle seat than be in the front.
Another way to make up for lost revenue from missing seats is to change the free bag policy to one bag is free unless they purchase a first class seat or they are premier fliers.
Be more aggressive with Chase to earn a ton of revenue from them. Create “must have” Southwest credit cards that people want to keep…I’m about to cancel mine because the perks aren’t worth the annual fee and it’s too much of a pain in the ass to use the credits for A List boarding! So annoying!
Have Southwest lounges for credit card holders or people who want to pay for them. Have real food like AMEX does but make them fun…arcade games, cornhole, carnival games…I don’t know but just make them unique and fun. These lounges are making a ton of cash so why not jump on the bandwagon.
I feel like there are ways to be customer friendly and fun yet still make a ton of cash.
Southwest has done nothing over the last several years to address the multiplying “JETWAY JESUS” passengers that have cheapened A List and A List Preferred Status. Customers have complained and management has done nothing. Your model is broken, because Americans lie daily in their lives. That won’t change, so you need to. Jordan barely survived the Xmas Meltdown in 2022. He won’t survive this. Southwest has acted too slow, and new blood is necessary.
Assigned seating Please!
I agree with most that this would be a mistake. But if I were WN I would semi-quietly start charging for the second checked bag. This would be later bag fee changes less drastic.
Bankruptcy does not solve your labor issues, it did in the ’90’s, the laws have changed. Besides, labor is their best asset, why p*ss them off to make Elliot raiders any more money than they already have.
The hedge fund vultures getting involved almost certainly means the beginning of the end of Southwest, as the airline will get destroyed from the inside out. They’ll install some yes-men, likely end most of the customer-friendly policies and turn it into an ULCC, cash out a few years from now in a LBO while loading the company with debt, and leave the carcass to be picked at by the poor schmucks snookered into sticking around. Of course, none of this would have happened if not for Southwest’s failed leadership, which should have been given the boot months, if not years, ago.
It was a nice 50-year run while it lasted.
How to Fix Southwest.
First Keep open seating and Bags Fly Free.
BUT modified the open seating and have Two separate Zones on every aircraft.
Eliminate 6 seats forward of the Exit Row on all aircraft this would allow WN to offer these seats as “Luv seating” (extra leg room seats) This would bring the 737-700 back to 137 passengers and 169 on the 737-800 & MAX8 to 169 passengers.
All the rows behind the Exit row would remain the standard WN seat pitch they offer today that has the most leg room in the entire aviation industry when it comes to standard economy seating.
Eliminate All the THRU flights from its network.
WN could sell “LUV seating”as its new Anytime fares and Rapid rewards upgrade perks.
Still offer Business Select boarding A1-A15
Then A16-A60
These passengers would have the first opportunity to score these seats during the boarding process.
The Anyone that buys Wanna get away plus Fares would get boarding group B1-B60
They would have the next opportunity to possibly get the remaining prime seats.
With TWO separate Zones WN can legally tell passengers who didn’t BUY the hire fares and ask for preboarding to sit in their required zone.
This would eliminate the current problem of everyone Gaming WN system by buying the cheapest WGA fare then asking for preboarding and taking all the front seats ,over head bin space and trying to save rows for everyone else in their party in group C away from the Business Select passengers and A and B Boarding groups
Between groups B and C offer Family boarding for families with children between the ages 1-14 that haven’t upgraded to boarding group A or B.
Then Board Group C typically the lowest WAG fare passengers. Again this is normally the highest % of the passengers who ask for preboarding but seldom need it. AKA the Jetway Jesus flyers.
These are also the passengers who are forced to check bags in the Jetway when they run out of overhead bin space. There the typical ones who bring more than the One plus one small carry on luggage and cause the biggest problems during WN boarding process.
By simply switching the carry on luggage rules for the Lowest fare group to Just 2 FREE checked bags and ONE small personal item this would eliminate 90% or WN boarding issues and speed up the entire process. Plus you wouldn’t see 50
Plus Preboarding Scammers rolling onto the aircraft with TOO MANY items taking up all the over head bin space.
WN could bring back the super cheap $29 WAG fares but it comes with zero flexibility.
You want Any flight Same Day stand by offer that to your highest priority passengers and Rapid rewards CC holders.
This would generate billions more additional revenue.
As it stands now the System is Broken and WN is losing money and closing cities vs being the airlines that done nothing but grown since 1971 and made record profits.
Also WN needs to offer international codeshare services and Take foreign currency.
I don’t think Bob Jordan and Andrew Watterson are the ones to take the blame for WN not being up to speed with technology and systems changes.
They Both unfortunately inherited a failing infrastructure from Gary Kelly and Mike Van def vin Who foolishly prioritized Lucrative Stock buy backs instead of investing in cutting edge technology and settling Union labor contracts swiftly ruining employee morale and culture.
Maybe this Elliot Investment is the thorn in your backside Herb always warned about if you sit on your laurels.
Southwest should keep two free checked bags and open seating. Cracking down on those who fake disabilities to get preboarding would be a good thing as well. I also think Southwest should start service to Canada. Two free checked bags is a distinctive that Southwest has that other carriers in North America do not have. And open seating is something Southwest got from the business model of the now departed but fondly remembered PSA.
If Southwest starts charging for a first or even a second checked bag, I will start pushing for repeal of deregulation.
The meltdowns, the Congressional appearances (what a farce) and the subsequent Chief Pilot apology to the public say it all: Southwest has lost its way. it is no longer interested in people, service, fun, commitment to provide safe, reasonable and convenient transportation, as designed by Herb Kelleher whose style presents the ultimate case study for airlines or any service company whereby if you take care of your people, they will take care of your customers, which will take care of your shareholders. Ditch the execs who have run the airline into the mediocrity it has become. Allow Southwest to re-ignite the passion n its employees and re-gain its position as a great place to work. (And before anyone chimes in, I’m not a SW employee or shareholder).
How does one crack down in the fake pre-boarders when the ACAA holds all the cards?
Time to amend the ACAA, AFAIK.